Statement of Frank L. Davis, Jr
Statement of Frank L. Davis, Jr., Co-Founder, Executive Vice President and National Director of Legislative Affairs, National Retail Sales Tax Alliance
Testimony Before the House Committee on Ways and Means
Hearing on Fundamental Tax Reform
Mr. Chairman, Mr. Rangel and Members of the Committee; my fellow Americans. It is a privilege to be asked to testify this afternoon. My name is Frank Davis. I am a retired Naval Reserve Aviator, having spent 28 Ѕ years in active and reserve service to my country. I consider myself still serving, albeit in a somewhat different capacity, but with the same goal in mind: protect my country from all enemies, foreign and domestic. As you might expect, I consider that the duty of every citizen.
I am a co-founder and the Executive Vice President and National Director of Legislative Affairs for the National Retail Sales Tax Alliance (NRSTA). The National Retail Sales Tax Alliance is a nonpartisan, non-profit grass roots organization working with like-minded individuals, think tanks, other public interest advocacy groups and businesses to replace the federal tax system with a National Retail Sales Tax (NRSTA) and abolish the Internal Revenue Service.
I cannot think of a more fitting goal in life than to bequeath my country, my children and my grandchildren a free society without an income tax and without an IRS.
I am a citizen activist. In my testimony today, I will relate to the committee the viewpoint of a very concerned private citizen. My testimony reflects both my own thinking in this matter, and the advice and counsel of countless thousands of American citizens, who are likewise concerned about the ship of state.
For example, the Internet has proven very helpful to the NRST movement; we are able to mine a rich field of pertinent research, communicate with and share opinions with expert economists and political scientists and more important, find each other. In this regard, FReeRepublic.com is an especially helpful site for keeping a pulse on the American public with respect to fundamental tax reform.
A number of prominent public servants have provided outspoken leadership for the NRST tax reform movement. I want to personally thank you, Chairman Archer, for your foresight and leadership these past five years. Also, now retired Congressman Dan Schaefer, who was the primary sponsor of the first NRST legislation introduced on March 7, 1996. Senator Richard Lugar has long been an advocate of the NRST. In the present Congress, leaders such as Congressmen. W.J. "Billy" Tauzin, Jim Traficant, John Linder and Colin Peterson, along with the cosponsors of their respective Bills, are to be congratulated. Congressmen Largent and Cox also deserve recognition for their efforts in tax reform.
Notice, if you will, that this is a bipartisan movement. It is not about partisanship, it is about doing what is right for America.
In addition, articles published in influential opinion journals have contributed to the dialogue. I highly recommend Dr. Alan Keyes' article, The Case for Repealing the 16th Amendment Abolish the Income Tax! published in Human Events magazine on April 17, 1998.
Well known organizations such as The Americans For Fair Taxation, the Tax Foundation, the Tax Education Association, Heritage, the CATO Institute, The Argus Group, Citizens for an Alternative Tax System, Citizens for a Sound Economy, and the National Taxpayers Union have proven to be invaluable in our work. And there are others.
Curiously enough, the article that constitutes my "defining moment" in respect of fundamental tax reform was also published on April 17th - in 1991. Pat Buchanan's nationally syndicated column that day was entitled "A tax whose time has gone?" That is the day I became a tax reform citizen activist. Mr. Buchanan has since published two more articles favorable to the National Retail Sales Tax.
A quick word about the National Retail Sales Tax Alliance. NRSTA does not support either H.R. 2001 or H.R. 2525; we support both bills. We know that neither bill will pass in its present form. We also know that there may well be additional NRST bills added to the mix, and that there will be provisions added and subtracted until such time as the Committee has reached consensus and the measure goes to the floor of the House.
Our promise to all Americans, to you, Mr. Chairman, to the Committee and to all interested parties is this: The National Retail Sales Tax Alliance will work to ensure that America gets a modern National Retail Sales Tax system which will meet America's needs for the 21st Century and beyond.
Mr. Chairman, there are at least three fundamental reasons why the income tax system must be replaced with a National Retail Sales Tax: freedom, economic growth and equality of treatment under the law.
America is the most envied nation in the world. Not only are we envied by the world's governments, we are envied by the world's people. America is the only nation in the history of the world whose founding was based on the notion that certain unalienable rights are handed down from God to the people, and then are loaned to government. Since the dawn of man, governments have claimed that rights are handed down from God to government [Divine Right of Kings] and then loaned to the people, a very important distinction.
How important? To the degree that America has become the great nation it is today, and has the capacity to become an even greater nation, the concept of a citizen's unalienable rights is very important to keep in mind as we consider fundamental tax reform. This concept differentiates the United States from every other country in the world. Every U.S. citizen's unalienable rights are guaranteed by our founding fathers in the Declaration of Independence and the Constitution.
Why, then, does the United States have a tax system which severely restricts its citizen's Constitutional rights, artificially limits their ability to work, save and invest and exacerbates class warfare by dividing them one from the other on the basis of types and amounts of income?
These perverse disincentives to succeed, and the resultant lower (than it should be) U.S. economic growth in recent years, are fueled by our oppressive income tax code. It defies comprehension - the United States of America has a tax code based on the Nineteenth Century Marxist class warfare notion of "from each according to their ability, to each according to their need." Do we really want to begin the 21st Century with a tax system based on class envy and warfare, which punishes those who work, save and invest and rewards those who don't? Do we want a tax system that annually invades our privacy and usurps our Constitutional Rights? Or do we truly want to be a free people?
We can never be a truly free society so long as we allow the income tax and the IRS to exist.
If we are to restore to American citizens those freedoms guaranteed by the Constitution, we must replace the federal tax system with a National Retail Sales Tax (NRST), and in the process abolish the Internal Revenue Service. While we are at it, we must also repeal the 16th Amendment to the Constitution to ensure complete tax reform and to ensure that America will never have to suffer another income tax.
Dr. Keyes refers to the income tax as a . . . "slave tax - inherently incompatible with freedom. Abolishing it is therefore not just economically feasible, it is a moral imperative if we are to meet our obligation to bequeath liberty to future generations."
Under the NRST, Americans would no longer have to annually divulge to a faceless bureaucrat their most private and personal financial information. How much money an American earns becomes his or her own private business. Taxes will be paid on the basis of how much a person "takes out" of the economy rather than how much a person earns. Under the NRST, those who consume the most, will pay the most in taxes. All Americans will be encouraged to work, save and invest, and government interference in their personal economic activities will cease. That, my fellow Americans, is Freedom.
The next question before us is: Why does the United States have a tax system that discourages and penalizes those activities which grow the economy?
The progressive income tax system punishes those personal and business activities that encourage economic growth. The more a person works, saves and invests, the higher his or her taxes become. Likewise, the more successful his or her business, the higher his or her tax bill (which is passed along to the consumer in the form of higher retail prices).
And there is the matter of hidden taxes and compliance costs in the business income tax. The current tax system holds both people and business back, rather than encouraging them to move forward and become even more successful.
The change to a National Retail Sales Tax will cause (and these are very conservative estimates) the Gross Domestic Product rate of growth to double and the national personal savings rate will triple. America will become the investment "sponge" of the world - attracting billions of dollars invested elsewhere, further expanding the investment pool of capital available for business expansion and job growth. Interest rates will decline by 2 basis points, making it easier and less expensive for business to borrow money for growth and expansion and for individuals to qualify for home loans and other big ticket items. The NRST will eliminate compliance costs for individuals and reduce business compliance costs by a factor of 90%. And, those who chose to participate in the underground economy will pay taxes at the check out counter, just like everyone else.
And the economic benefits of a switch to the National Retail Sales Tax do not stop with these gains. Picture even lower unemployment, more and better jobs for people willing to work, higher wages, and more robust export markets.
In respect of exports, let me say that the recent WTO ruling declaring the Foreign Sales Credit provision of the current tax code illegal presents a challenge to America that the National Retail Sales Tax handles very well. The National Retail Sales Tax is a territorial border adjustable tax; meaning it is not applied to exported goods and is applied to goods imported for sale in America. The NRST is legal under the terms of the WTO. The NRST levels the playing field between domestic and foreign companies in respect of tax policy - it treats them exactly the same.
The NRST, when implemented, will cause America, in your own words, Mr. Chairman, to become "the economic juggernaut of the world." Foreign capital will flow into America and expatriated capital will return to America. As you know, with a NRST, jobs and companies that have "gone offshore" will relocate to America. Foreign businesses will locate new facilities here. In your words, Mr. Chairman, the NRST will "allow our nation and its people to soar to unparalleled prosperity in the next century."
The final point I'd like to make is that America's founding fathers guaranteed that the Rule of Law (as opposed to the Rule of Man - the "Divine Right of Kings" -- prevalent throughout the world prior to America's founding) would apply in America. The phrase "Equal Justice Under the Law." is chiseled in granite over the entrance to the Supreme Court Building, reminding us of the absolute importance of this founding principle.
The progressive income tax makes a mockery of the Rule of Law. The Rule of Law provides for equality of treatment before the bar of justice. We are violating one of America's basic founding principles by continuing to keep a progressive income tax system in place.
The progressive income tax system, which divides us into economic classes for the purpose of levying taxes, is conceptually wrong and at its core, un-American. You will recall that the founders were opposed to income taxes, and insisted that the country finance itself through excise taxes and tariffs.
In 1913 the 16th Amendment to the U.S. Constitution, the single worst piece of legislation ever passed by any Congress, was adopted. It fundamentally altered the relationship of the American people and their government, as the founders in their infinite wisdom knew would happen. The government became the master, and the people became the slave. Dr. Keyes addresses his remarks about the morality of the slave tax to this very point.
But it got worse. The instigators of the first legal U.S. income tax could have adopted a flat rate income tax, but they chose a different course and thereby changed the American political landscape. They accepted the second plank of the Communist Manifesto as the core principle of the U.S. tax system in 1913, and adopted a progressive rate income tax system. Thus, the progressive income tax system, with its built in appeal to those who practice the art of divide and conquer by encouraging class warfare became institutionalized in America. The progressive income tax intentionally pits Americans of different economic classes one against the another, and is used by demagogues for their own political gain.
How can America enter the 21st Century with a 19th Century Marxist tax system in place? And why would we want to?
Eighty seven years of tinkering has produced an unknowable tax code full of social engineering experiments. This social engineering has served only to make the code more complex and further disunite the American citizens. Tax policy should be focused on raising the funds necessary to operate government, not as a laboratory to "fix" this or that perceived social problem.
Americans are the most generous people on the face of the earth; social programs that we agree upon (within Constitutional bounds, of course) should be funded from the spending side of the federal ledger, not the taxing side.
As we are guaranteed equality of treatment before the bar of justice, all Americans must be guaranteed equality of treatment before the bar of economic justice. The best way to do that and to put an end to class warfare is to tax consumption, not earnings. With, and only with a consumption tax such as a single rate National Retail Sales tax, can we Americans be guaranteed equality of treatment under economic law.
I call upon the Congress to eliminate the social engineering in the tax code by adopting the National Retail Sales Tax. With the NRST, the economic class warfare that has so divided this country over the past 87 years will eventually go away - everyone will be working, saving and investing and we won't have time to be envious of "the Joneses."
Americans believe that all men are created equal by their Creator, and have an unalienable right to be treated equally by their government. The progressive income tax violates that fundamental principle.
Mr. Chairman, we are all stakeholders in America. As such, we should be enjoying equality of treatment under the law. As I have gone to great lengths to point out, we are not.
The NRST, because it is applied uniformly and taxes everyone at the same rate, will be a constant reminder to each of us that we are a stakeholder, and that taking an interest in the affairs of this nation is an important duty of citizenship. By demolishing the myth that there is a "Free lunch," the National Retail Sales Tax can become a unifying theme for all Americans.
Accordingly, I call for all Americans to unite, to come together and demand of our elected officials that the income tax system be replaced with a simple, fair, flat National Retail Sales Tax and that the IRS be abolished.
Mr. Chairman, I have in my possession (Appendix 1) an eloquent message from a taxpayer, who prefers to remain anonymous, that neatly sums up the frustrations millions of Americans have about our tax and regulatory system. I would like to read it for the record.
America will never be a truly free society so long as we allow the income tax and the IRS to exist. America will never realize its true economic potential so long as we allow the income tax and the IRS to exist. Americans will never be treated with equality so long as we allow the income tax and the IRS to exist.
What better way to restore Americans' Constitutional freedoms, invigorate America's economy through more robust economic growth and ensure that every American is treated with equality?
Isn't that what our Grand Vision of America is? One Nation, under God, with liberty and justice for all?
Thank you, Mr. Chairman for allowing me to testify.
Dear Friends and Buddies,
Most of you know that one of my most treasured beliefs is that we are a free people. I am deeply saddened that every day we lose more of those freedoms as the government usurps them in the name of protecting us from ourselves. Our current tax code is extremely damaging in that it punishes success (the very thing this country was founded on and so many lives were lost over) and it requires disclosure of every aspect of our lives for public consumption.
My spirit is personally so broken by this, that after doing our taxes I realize I am chipping my [joy of life] and very life away and have become enslaved by the government. I have decided to end it.
I am selling our business and I will not continue to contribute to this folly. It was a grim realization. Although we have a lot to contribute to this country and its future with our technologoy info and teaching, it is not worth the payback anymore. The exhaustion of teaching, the aching legs and feet, the sleepless nights waking up with leg pains after teaching all day, the stress of it, the technology "Keep-up" issues have all mounted too high unless there is big bucks in it. Running our own business has meant learning too much about regulations, forms, accounting etc. and handing over in excess of 63% of our earnings. And that is before property and gas and sales tax, let alone how to finance retirement and pay for college and all that.
I give up. The American Dream has vanished. I am joining the ranks of the crushed in spirit, the squashed, the oppressed. And yes, if you were wondering, I am depressed about the whole thing. A good cry sometimes helps, but that has been way too common of late. Oh well.
[The following is a personal letter to the Committee, from the same taxpayer]
To the House Committee on Ways and Means:
Please record my support FOR the National Retail Sales Tax to replace the tax code in this country. We must abolish the oppressive tax code and REPLACE it. The FLAT TAX does not accomplish replacement of the complexities of the code; it merely masks them and simplifies computations. Therefore I urge you to please support the FAIR TAX/National Retail Sales Tax.
I also urge you to abolish the illegal agency known as the IRS. It was not properly established according to our constitution and has powers way beyond those ever envisioned by our forefathers. The IRS simply MUST be eliminated, as everyone in good conscience must admit.
May this committee please take this challenge to right the wrongs perpetuated for many years by this agency called the IRS. We need a constitutional, non-invasive, and non-"targeted" tax code, that treats us with equality. And enact a tax code that preserves life, liberty and the pursuit of happiness ... not one that causes us to fear running afoul of the IRS and requires keeping every scrap of evidence from every sector of our lives, should it ever be demanded.
Thank you for your time.
1. Dr. Alan Keyes. The Case for Repealing the 16th Amendment. Abolish the Income Tax! Human Events, April 17, 1998.
2. Patrick Buchanan, "A tax whose time has gone?," Tribune Media Services, April 17, 1991.
3. Patrick Buchanan, "Brave new world: no tax forms, no IRS," Tribune Media Services, April 15, 1994; Patrick Buchanan, "Sales tax alternative," The Washington Times, July 14, 1997, p. A12.
4. Keyes, op. cit.
5. Laurence J. Kotlikoff, "The Economic Impact of Replacing Federal Income Taxes with a Sales Tax," CATO Policy Analysis No. 193, April 15, 1993.
6. Americans for Fair Taxation Policy Paper, "The Impact of a National Retail Sales Tax on Interest Rates," April 21, 1997.
7. Tax Foundation Special Brief, "Compliance Costs of Alternative Tax Systems II, House Ways and Means Committee Testimony," March, 1997, pp 8, 9.
8. Rep. Bill Archer (R-TX), Chairman, House Ways and Means Committee, "Opening Statement of Chairman Archer Fundamental Tax Reform Hearing," June 6, 1995.